The tidal wave of regulation coming at treasurers shows no sign of abating just yet. Whether obvious such as OTC, indirect such as Solvency II (for the insurance industry), or just plain routine on any number of accounting or banking system issues, the world’s makers of red tape must be in overdrive. However, the question that regulators and governments are attempting to address – how do we minimise or eliminate systemic risk? – has any number of hidden dangers. Indeed, their efforts at battening down the hatches have created so many unintended consequences that one wonders whether regulators and politicians have read the script.
“Hey, guys, let’s tell the banks to raise their credit costs. And while we’re at it, let’s tell the insurers to think twice about investing in corporate bonds. Those pesky corporates that want to hedge? Tell ’em to use all their spare cash and give it to the exchanges to cover their swaps. What’s that? The other guys in Washington have come up with something else? Well, at least that fits the new motto: surround and confuse.”
Joking aside, we are coming close to the promised implementation of a whole range of industry-defining changes but there is little real clarity in much of what is proposed.
Readers may well be able to cite individual examples but it seems doubtful whether a set of coherent principles and rules exists.
What, then, can corporates do? Some might say it is the price corporates have to pay for using a broken system (not that we broke it) and that other alternatives (a Tobin tax, for example) could only be worse. Treasurers should not buy that argument. When your financial service provider tells you it’s going to cost more “because of regulation”, push back, challenge, ask to see the numbers, double-check the documentation and then ask someone else for a better deal. The evidence suggests that the huge deleveraging and cash accumulation operations undertaken by corporates over the past three years are perhaps the most unintended consequence of all – business reducing its dependence on the financial system.
The ACT’s policy and technical team is always keen to hear the views of ACT members, students and readers of The Treasurer on proposed regulation and legislation. And make sure you let us know – email us via technical@treasurers.org – if you are doing anything innovative or exciting.
PETER MATZA
HEAD OF PUBLISHING
